Referred Realty – Federal Court sets aside a CRA decision not to apply a credit under s. 221.2 based on the taxpayer’s slowness in filing returns

The taxpayer had very substantial difficulties (relating to two successive incompetent bookkeepers) in getting its records into accurate shape, that resulted in a four-year delay in filing any income tax returns although, in the meantime, it kept remitting estimates of its tax. CRA garnished its bank account in an amount that was excessive in light of its ultimately-filed tax liabilities. The excess amounts collected by CRA were non-refundable due to the return-filing delays, and the taxpayer applied under s. 221.2 for these credits to be deducted from future tax liabilities.

CRA denied the request on the grounds that the taxpayer must bear the consequences of its poor record-keeping and extensive delays in filing returns. Campbell J set aside this decision on the basis that this did not constitute “a clear and supportable justification to deny the Applicant’s re-appropriation request given the large sum of money under consideration” and it constituted “the delivery of a punishment to the Applicant for perceived failure to meet the [Minister’s] Delegate’s unclear expectations.”

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